Hi,
One solution, use an ImageField object instead of an Image object. Then go to the Object > Binding palette and for the binding select No Data Binding (or None, depending on your version of LC Designer).
Because you are now using an ImageField you will need one line of code in it's docReady event (JavaScript):
this.access = "readOnly";
The lines in the XML data file contain the image in Base64 format.
Hope that helps,
Niall